Financial panic? Yaaaaaawwwwn.
When President Bush tried to make the case for his $700 billion bailout bill on prime-time TV, he painted a dire picture if it didn't pass. "America could slip into a financial panic," he warned. "The value of your home could plummet.... More businesses would close their doors, and millions of Americans could lose their jobs.... Ultimately, our country could experience a long and painful recession."
Americans obviously didn't buy it. Unmoved by Bush, they barnstormed Congress in protest, and the result was the stunning defeat of the first bailout bill in the House, five days after Bush pleaded for it on TV.
Now, with a new financial rescue plan in the works, I asked several experts how they'd make a more compelling case that American consumers need to stand behind billions of dollars in aid for ailing financial institutions. Some of their ideas:
Duke University economist Dan Ariely, author of Predictably Irrational : "The barrier here is revenge. It's not that people are stupid; it's that they want the bastards who caused these problems to pay. If you want to pass a bailout, you have to have a revenge component. There should be stop points for what will happen to people who do this again. And if we're going to nationalize financial companies, then let's nationalize the stock options, too. Instead of going to executives, they should go to the taxpayers. These things are valuable, so we could put them in a public trust, make Warren Buffett in charge, turn it into a money-making opportunity and use the money to build roads or something like that."
Robert Hansen, senior associate dean, Tuck School of Business at Dartmouth: "Intervention in the U.S. financial system is not a new thing. The financial system we have, with agencies like the Federal Reserve and the FDIC, is a result of the many banking panics and economic crises of the 1800s and early 1900s. All financial market participants assume that there are times when these government agencies will step in to dispel fear and prevent things like bank runs and the freezing of normal markets. If this is not one of those times, I do not know what would qualify.
"It is also very unfortunate that the media have chosen to portray this as a bailout that will cost the taxpayer $700 billion. I fully expect the actual cost of this program to the taxpayer to be close to zero. Remember that the government is not planning on giving anything away. We will be buying assets, and we will be selling those assets after time and restructuring makes them more valuable. I believe the government is in an excellent position to buy low and sell high."
Charles Payne, CEO of research firm Wall Street Strategies: "Bush would have won more converts by mentioning two other things: When we make money on the bailout, this is where it will go—a stimulus package for taxpayers. And if you think you're insulated, it's a mistake—millions of people could lose their jobs."
Susan Wachter, professor of real estate and finance at the Wharton School: "Your job and your home depend on the bailout plan. If you need to move to get a new job, or sell your home, that depends on a buyer, and the buyer needs a bank to make the loan. Businesses, too, need their loans coming due to be refinanced; otherwise, they can't make their payroll. These ordinary outcomes of a functioning banking system are under threat. Yes, people should bear the burden of their mistakes. But the penalties of not acting would be imposed widely, with families throughout America suffering the consequences, as in the case of Japan, where the economy stagnated for decades as a result of indecision."
Dirk van Dijk, director of research, Zacks Investment Research: "The Christmas holidays are coming up. Most retailers have to borrow money to stock the shelves for Christmas; then they'll pay back the money afterwards. What's more important than the stock markets right now is the credit markets, and it's getting almost impossible for companies to borrow. So the in worst-case scenario, Macy's at Christmas could look like the GUM Department Store in Moscow in 1985, with practically nothing on the shelves. If the store has to shut down, then the mall it's in has an empty hole, and that mortgage becomes more dicey. Then lather, rinse, repeat."